Author Topic: MMM idea on protecting stache from spendthrift relatives--good idea!  (Read 3221 times)

champion

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Trying to post this.

One interesting idea on protecting your 'stache from spendthrift relatives came from MMM himself a while back.
I don't remember how he phrased it, but this was the basic idea:

Basically, a 'stache for a mustachian is quite different than a bank account for a spendthrift.  Spendthrifts don't understand saving--when they know there is money available somewhere, they think it should be spent.  And the idea of a mustachian  relative with a big bank account refusing to hand over some cash when they need it would make them mad.

But the way we mustachians think about the 'stache is "an army of dollar bills working for us."  And when we think about how much support we might be willing to give relatives, we need to remember to think of our 'staches the right way.  They are not idle funds that could be used to bail someone out.  They are an army of dollar bills working for us. 

For mustachians, the 'stache is (eventually) the primary means of generating an income.  It's the equivalent of someone else's career, or someone else's business.  You wouldn't throw away your career to help a relative in need--that would quickly render you LESS able to help.  And a business owner who owned a pizza place wouldn't sell off his pizza oven to raise cash for a broke family member--that would destroy the pizza business.

Similarly, mustachians should think of their 'stache as a business, a business that should not be broken up or sold off for parts.  That business does generate an income.  If we want to help our relatives, we can share some of that income.  That would hurt our own lifestyle a bit, and it would hurt our ability to reinvest in our business a little bit, but it wouldn’t erode the value of the business itself. 

So that’s one suggestion MMM had for the way to handle these situations.  Share the income if you want to, but don’t destroy principal.

Let’s throw out some numbers.  Let’s say you save up a million dollar ‘stache, which throws off $40K a year (4% withdrawal rate). 

Don’t fall into the trap of thinking like the spendthrifts—“You have a million, giving us $50,000 shouldn’t be a big problem—it’s only 5%--you'd still have $950,000 you rich lucky person.” 

No.  Instead, recognize that the ‘stache IS your business, your economic engine.  You can’t dismantle that engine, not even a little bit.  What you can do is share some of the income from that business if you want to. 

Thinking of it properly like that reveals tighter limits on your ability to help.  If you are making $40K a year from your ‘stache, obviously you can’t hand over $50,000.  That’s your ENTIRE income for 15 months.  Could you spare $10,000 over the course of the year?  It depends.  That’s 25% of your annual income, only doable if you live on $30,000.  And you’re still making quite a sacrifice in that situation—forgoing your entire opportunity to reinvest in your ‘stache that year. 

So, everyone has different ideas about how much they want to help, can help, etc.  In this scenario, some would give $10,000, some would give $2,000.  But by thinking of it in terms of annual income only and taking the idea of ‘stache destroying principal raids off the table, you at least mentally limit the scope of the issue. 

And if you need to resist guilt trips over this, maybe it would help to actually give your 'stache a business name.  Like "Small Business Limited."  You're not someone with a million dollars in the bank which you greedily refuse to share.  You are a small business owner whose business only makes $40,000 a year.  If you start to think of it this way, internally and externally, it won't occur to you to break up your business.  You make $3333 a month.  And most of that goes toward your monthly living expenses.  You can choose to share any surplus, or to expand the surplus by lowering your own living expenses.  But you can't take a sledgehammer to "Small Business Limited."

You wouldn’t eat your own seed corn, so you definitely shouldn’t feed it to someone else, reducing all future crops forever. 
It’s okay to share the harvest, not okay to sell off parts of the farm.

What do you think?

Vilx-

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That's all nice and fine. Mustachians rarely need to justify not-giving-money to themselves - they've understood all this already. But how do you explain this to your relatives who think that you are a rich bastard who's just hogging all that money for no reason at all? (You have a million, giving us $50,000 shouldn’t be a big problem—it’s only 5%!)

Dee18

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This is a good reason for keeping your finances private, including not telling kids (which burdens them with keeping a secret).

foobar

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That is probably even harder than saving money:) You are going to want to brag about how you don't want to work because of how cheap you are.

This is a good reason for keeping your finances private, including not telling kids (which burdens them with keeping a secret).

Villanelle

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We aren't yet retired, which makes it easier to hide the fact that we have a nice net worth.  Additionally, they fact that we live fairly modestly compared to the Jones adds to the appearance, for those who spend every penny they earn (and perhaps then some) that we aren't all that well off.  Those two things reduce some of the money grab that might come if our entire financial picture was framed and hanging for all to see.

However, we have a relative that we do worry about with regard to asking for handouts someday.  Our party line (can you tell we've discussed this at length so as to be prepared, which is key, especially for people who have a hard time saying no and being assertive) is that, "all of our money is spoken for right now and we don't really have an extra".  And that's perfectly true.  It make be earmarked for an Roth IRA or some Lending Club investments or a sinking fund for 10 years from now when we may need a new roof or car, or even for travel and splurge on a new outfit, but we certainly don't have any "extra" money just laying around. 

Then we'll shift the conversation to what we can offer, which is budgeting dissection, help finding a realtor, assistance selling things on ebay, help finding a cheaper apartment or roommate, etc.

And if anyone presses for details, we'll tell them we are uncomfortable discussing our exact financial situation, and, if necessary, blame our spouse. (That's not something we typically do, but if my family member approached me, then explaining to them that our finances are between DH and I is a nice, easy deflection.)